Eric and Josie are regular investors in the market. They just experienced their first large loss and they are the reluctant â€œloser.â€ As a potential financial manager for Eric and Josie, what might you recommend? How might you explain common mistakes investors are likely to make when making financial decisions?
As you begin thinking about how you might advise clients in situations similar to that of Eric and Josie, consider the differences between prospect theory and expected utility theory. What do you know about behavioral approaches to financial decision-making?
For this Discussion, you will examine two theoretical perspectives, prospect theory and expected utility theory as they relate to financial decision-making.
This week’s Learning Materials will help you with this Discussion.
Review the Learning Materials for this Discussion and specifically focus on prospect theory and expected utility theory as they relate to financial decision-making.
Post an explanation of whether you believe people derive happiness/utility from their level of wealth, changes in wealth, or some combination. If so, how? If not, why not? Provide examples and use your Learning Materials to support your post.
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